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Xerox Could be a Dark Horse in 2023



I doubt I’d surprise anyone if I said Xerox (NASDAQ: XRX) is currently in a state of disarray. The 116-year-old printing and document services giant has tried several times in recent years to revitalize its business with limited success.

On the surface, the Q3 FY ’22 results released in late October were dismal. As a result, the stock dropped 36% year to date as of the market close last week.

However, if you are concerned about a 2023 recession, you might be interested in the following points/comments from XRX’s Q3 FY ’22 Earnings Presentation:

Two-thirds of revenue is contracted for numerous years.

Many of XRX’s service offerings are anti-cyclical in nature. (As a reminder, post-sales revenue accounts for the majority of XRX’s main print business.)

“Consistent with the uncertain macro climate, we are beginning to witness lengthier project deployment periods and lower page volume pledges. We believe our company to be resilient if weaker macroeconomic conditions induce a major decline in enterprise IT spending.”

It’s a bit of a paradox to assume that the stock of a company that has been slowly dying could be a safe haven if the economy falls apart next year. However, even a failing firm can be valuable. Simply ask Carl Icahn…


Making Investments Like Carl Icahn

Carl Icahn, as you may know, has been picking up XRX shares for years now, and increased his stake in April by more than 2 million shares, boosting his ownership position to about 20%. What does he notice about the company?

The most straightforward explanation is that he sees an undervalued firm that has been mismanaged for a long period. He earlier stated that “Xerox was one of the worst-run companies I ever witnessed.”

Unsurprisingly, Icahn proxies fought their way into the XRX board, and Mr. Icahn has pushed management to maximize shareholder value. In 2016, he advocated for the spin-off of Conduent (CNDT), XRX’s outsourcing firm. (As of the market closing on December 23, CNDT had a market capitalization of less than $900 million.) He was said to have pushed for XRX’s unsolicited offer to take over HP in 2019. (HPQ). That endeavor failed, with HPQ management stating that a merger of the two companies made little sense.

But he clearly sees potential in the company, which is now helmed by new CEO Steve Bandrowczak following the unexpected death of XRX’s former CEO John Visentin.

Mr. Bandrowczak has his job cut out for him, as Xerox has revised their FY ’22 guidance downward following the announcement of Q3 FY ’22 results:

From a total revenue of $7.1 billion to a revenue range of $7.0 billion to $7.1 billion in actual currency,

FCF from $400 million to at least $125 million.


The declining trend is consistent with the larger “blow” that XRX sustained during the epidemic, from which they have yet to recoup.

Despite the company’s intra- and post-pandemic challenges, the reality is that XRX’s legacy printing and document services division continues to generate cash, with management remarking at the end of FY ’21 that “demand for [print] products and services remains high.” Furthermore, Xerox is undoubtedly still the market leader in printing and document management solutions after more than a century (albeit not without strong competition).

It’s simpler to appreciate Mr. Icahn’s interest in this setting. We have a company that has:

A consistent, if gradually dropping, revenue and earnings stream from its main operation that can be used to fund growth projects.

A position of leadership in a mission-critical niche – it will be a long time before printing is entirely obsolete.

A diverse customer base ranging from small businesses to major corporations, distributed across 160 countries.

He evidently believes, and has for a long time, that the intrinsic value of these attributes outweighs the monetary value of the organization. As a result, I believe there is a compelling case to be made for investing in Xerox right now:

1. Even in recessionary conditions, the print industry is projected to be resilient in 2023 (see introduction).


2. Management is attempting to unlock shareholder value by growing key businesses that can someday be spun-off, perhaps with a little shove from Mr. Icahn and other activist investors every now and again sarcastic> (more on this in a moment).

3. The stock, which is currently trading near its 52-week low, is likely undervaluing the company’s underlying value.

Thinking About It

Let us go over the three reasons from the previous part in further depth.

1. The print industry is expected to be resilient in 2023. “[Third-party] research projects the print technology and managed print services (MPS) industry to grow 1% through 2024, and we anticipate to do better,” Xerox stated in their Annual Report FY ’21. This view was reaffirmed in their 2022 Investor Day Presentation. Even if a recession occurs in the coming year, any impact on new equipment sales may be more than offset by increased customer spending on maintenance and other after-sales services, as many businesses return their personnel to the office. Furthermore, XRX’s performance in the latter half of the pandemic and throughout much of 2022 was marred by supply-chain issues. While management stated in their Q3 FY ’22 Earnings Presentation that supply-chain issues continue to impact the print business – and were partially responsible for the lower FY ’22 FCF guide mentioned earlier – perhaps there is some evidence that, at the very least, component and supply shortages will be less of an issue in 2023. Color ink shortages, for example, hampered color printer sales during the pandemic. XRX, on the other hand, had install growth across all sectors of its color printer business during Q3 FY ’22.

Granted, management hasn’t given specifics on when and if supply-chain difficulties would abate. However, they have not yet updated their FY ’23 – FY ’24 growth model, which would probably be influenced by ongoing supply-chain concerns.

Also worth noting is that XRX’s backlog increased significantly at the end of Q3, reaching $429M from $265M at the end of Q3 FY ’21. So, as the year comes to a close, the business appears to be in terrific health. Finally, as I mentioned in my previous article on Xerox, the post-sale component of the print business has a higher profit profile. It doesn’t require much capital investment, with management noting in their Annual Report FY ’19 that “…there [are] low annual capital expenditures (less than 2 percent of revenues) required to support [it and]…these factors result in stable gross margins and operating margins as well.” Figure 2 shows that XRX’s gross margin has been anything but constant, with the adjusted operating margin falling to 3.7% in Q3 FY ’22 from 4.2% in Q3 FY ’21. However, keep in mind that the pandemic put a particularly significant monkey wrench into the machinery of Xerox. Given the business’s history of countercyclical dynamics, as indicated in the introduction, and management’s efforts to get the core “back on track,” it’s not unrealistic to believe the print industry will thrive (relatively speaking) in 2023.

2. Management is aiming to increase shareholder value by establishing key businesses that can be spun off in the future.


Management appears to want to list specific growth businesses at the appropriate moment in the future, “a la” Conduent, with FITTLE and CareAR being two obvious possibilities. With XRX’s growth activities being in their early stages, it’s impossible to predict what the resulting value of these efforts will be for the shareholder. However, I believe it is important expressing the obvious that investments such as those in FITTLE and CareAR build on existing capabilities, implying less risk and a better likelihood of long-term success. Similarly, I’m excited by XRX’s IT services push in the SMB market, which leverages their existing contacts with smaller enterprises – a sector that is arguably underserved. And I wouldn’t be shocked if their IT services division gets rebranded in the near future, with the goal of eventually becoming self-contained. So, while nothing can be said with perfect confidence, I believe the signals clearly lead to a shareholder opportunity, based on management constructing key growth areas with money from the core printing business and then spinning them out at the appropriate moment.

3. The stock likely undervalues the company’s intrinsic value. As of the market close on December 23, Xerox had a market capitalization of $2.3 billion, and the stock is trading near its 52-week low.

CareAR, as noted in the previous point, was recently valued at $700 million. Considering that, as well as the qualitative justifications in the prior two points, the company appears to be undervalued in my opinion, despite its history of erratic performance and mismanagement. When the company’s forward P/S and P/B multiples are considered, it appears to be a steal.

Putting Everything Together

I mentioned earlier that XRX is a shambles. That is still my opinion. But, based on where shares are trading right now and in the context of my observations in the preceding sections, I believe the risk/reward equation skews in favor of the long Xerox investor heading into a recessionary 2023.

With the dividend yield currently nearing 7%, investors are being compensated handsomely for holding a company that can still produce shareholder value even while it steadily diminishes.

I had previously established a long position in Xerox after authoring my last article on the company in late 2020, with an average cost base of roughly $18/share. I chose to exit the position earlier this year when the stock was still trading above $20 per share. With Mr. Bandrowczak at the head and backing from Mr. Icahn and other activist owners, I’m hoping he will instill a sense of discipline that has long been lacking. XRX has a lot of potential opportunities for new growth, yet management has to be careful not to “boil the seas”. I plan to start a new position. On December 29, XRX goes ex-dividend.

Of course, with a company like Xerox, nothing is certain, and Wall Street’s attitude is definitely gloomy. However, the contrarian long play on the stock may work well in a potentially recessionary 2023, even though it shouldn’t.


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TSMC to Continue Pushing in 2023




TSMC to Continue Pushing in 2023

Still has momentum.

We still issue a buy rating on the Taiwan Semiconductor Manufacturing Company (NYSE: TSM). Our optimistic outlook on TSMC is based on our belief that the firm is better positioned to outperform now, as the semiconductor industry slowly but steadily improves and the company accounts for lower demand in FY2023. TSMC’s fourth-quarter earnings reports were mixed; the company beat profitability projections but fell short on sales. Despite this, the stock climbed roughly 5% when earnings were released. We believe TSM is attempting to counteract reduced end-market demand and inventory corrections, which have hurt sales and lowered forecasts for the upcoming quarter. It is likely that a bottom in TSM and the semi-space in 1H23, followed by a significant recovery in the year’s second half.

We feel that TSM’s stock is a good entry place before the semi-space rebounds. Since our last post on TSMC in late October, the company has already gained 41%, surpassing the SOX index, which has gained only 21%. The graph below depicts our rating history for TSMC.

We urge that investors disregard the market hype surrounding fears of a Chinese invasion of Taiwan and instead focus on the company’s industry-first approach. We believe that TSMC is best positioned to benefit from chip demand once the semiconductor market recovers. Furthermore, we anticipate the company will have the additional power to raise ASP in the second half of 2023. We recommend that investors purchase the stock at current levels in order to benefit from TSM’s rising growth trend in 2023.

The leading pure foundry space allows for ASP gains.

We favor TSMC’s position in the foundry industry, with a 60% market share in 4Q22, and expect it to boost ASP on advanced nodes. We predict TSMC’s market share will expand significantly in 2022 as a result of the increased manufacture of smaller, more sophisticated 5nm wafers. Nanometer size is at the heart of technical developments in the semiconductor industry and, by extension, the world. To be more specific, nanoscale size refers to the distance between transistors on a chip; the smaller the chip, the more advanced and high-performing it is. Our positive outlook on TSM is predicated on our expectation that the company’s growth would be driven by increased adoption of advanced nodes, which are gradually accounting for a larger portion of TSMC’s revenue by technology. TSM has also begun the manufacture of 3nm processors for Apple (AAPL), sustaining Moore’s Law and looking ahead to next-generation technologies.

We anticipate that the rising global adoption of advanced nodes to meet the surging demand for semiconductors will fuel TSMC’s medium- to long-term growth. As a result, we anticipate that TSMC’s position will allow it to improve ASP on advanced nodes in 2H23, owing to the fact that it retains big semi-players as top clients, including Nvidia (NVDA), Advanced Micro Devices (AMD), and AAPL, among others.

Headwinds still persist

TSMC is not immune to the demand slowdown caused by macroeconomic headwinds, as seen by a dip in 1H23 followed by a fast recovery in 2H23. In Thursday’s results call, TSMC CEO C.C. Wei clarified, stating he anticipates 2023 to be a “slight growth year.” We expect TSMC will face inventory corrections in 1H23 as a result of the deteriorating chip-demand environment. We estimate CAPEX reduction in TSMC during 2023, largely as major client AAPL forecasts reduced demand despite weaker consumer spending. TSMC management warned that revenue would fall by roughly 5% in 1Q23, and that annual spending would be reduced. TSMC announced a CAPEX of $36.3B in 2022 and expects CAPEX to be $32-36B in 2023. We are not concerned by TSMC’s lower 1Q23 prediction because we believe the firm is de-risking guidance due to the challenging macro environment.

Despite the macroeconomic challenges, we expect TSMC to continue growing its foundry operations outside of Taiwan in order to mitigate the risks of geographically concentrating manufacturing on the disputed Island. We believe TSMC will play a larger role in the global shift to manufacturing chips in the United States after the CHIPS Act is implemented in 2022. The business intends to more than increase its investment in US foundries to $40 billion by 2026, establishing the US as a hub for advanced chip manufacturing. We estimate that it will take three to four years for US semiconductor companies Intel (INTC) and TSMC to meaningfully produce chips on US territory. Nonetheless, we anticipate that TSMC’s US fabs will be a long-term growth driver.


We predict TSMC stock to rise in the second half of 2019 as the semiconductor sector recovers from a 15-month slump. We anticipate that product introductions and expanded manufacturing of 5nm wafers will help the semiconductor industry recover.


We feel TSMC is a value investment since it is selling at a discount to its peer group average. The company is trading at 14.4x C2023 P/E, compared to the peer group average of 21.9x. The company is currently selling at 0.2x EV/C2023 Sales, compared to the peer group average of 4.8x. We believe TSMC stock offers an appealing entry point at current levels, and that investors who purchase the stock now will be well rewarded in 2023.

What should be done with the stock?

We remain optimistic about TSMC. We believe the stock is reacting to lower chip demand in 2023. While we expect the stock to remain volatile in 1H23 as the semiconductor space bottoms, we believe TSMC will benefit from demand tailwinds as the semi-space recovers in 2H23. We also anticipate that TSMC’s growth will be fueled by higher 5nm production and the company’s capacity to boost ASP on advanced nodes in 2H23. We feel the stock offers a good entry point at the current price and propose that investors acquire it.

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Solana is Coming Back to Life With a Massive Surge




Solana is Coming Back to Life With a Massive Surge

It’s a true comeback: the triumphant return of Solana that many experts and industry insiders had written off after the bankruptcy of Sam Bankman-Fried’s FTX on November 11.

They predicted that SOL would not be able to withstand the earthquake symbolized by the collapse of the FTX cryptocurrency exchange and its sister company Alameda Research, a hedge fund that also serves as a trading platform for institutional investors.

In the crypto world, FTX and Alameda were the major corporations representing the Bankman-Fried crypto empire, abbreviated SBF.

“Sam Coin”

Solana did, in fact, have intimate ties to Bankman-Fried. Sol, also known as “Sam coin,” is a token produced by the Solana Blockchain that enables the development of decentralized finance or DeFi projects that provide financial services such as loans, mortgages, financial products, and so on.

The coin is linked to an on-chain crypto exchange dubbed project Serum, which was founded by Bankman-Fried, who resigned on November 11 when his enterprise declared bankruptcy.

Serum is one of the infrastructure’s pillars, as it is the protocol and ecosystem that enables Solana DeFi’s fast speed and low transaction cost. It provides an on-chain central limit order book and matching engine, allowing institutional and retail investors to share liquidity and use strong trading features.

It allows developers the freedom to create trading applications without limitations, as it is not tied to any specific assets. This allows them to utilize Serum’s liquidity and ecosystem advantages in their trading application.


As if to prove Cassandra correct, Sol prices plunged by 73% between the onset of FTX’s issues on November 6 and December 31.

They finished the year at $9.96, down from $32.72 on November 5.

SOL has increased by 79%.

However, as quickly as they fell, so did the prices of Sol. According to monitoring firm CoinGecko, they are up 79% in the last seven days. Sol is currently knocking on the doors of the top ten cryptocurrencies in terms of market value. Before the club’s demise, the token belonged to it.

Prices are currently trading at $23.39, a 134% increase from the beginning of the year.

After a statement of support from Vitalik Buterin, one of the most important voices in the crypto world, sentiment toward Solana shifted.

Some clever people tell me there is a sincere brilliant developer community in Solana, and now that the nasty opportunistic money people have been washed out, the chain has a bright future,” Buterin, one of the co-founders of Ethereum, the most powerful crypto platform, wrote on Twitter on December 29.

Hard for me to know from the outside,” he said, “but I hope the neighborhood gets a fair shot to grow.

Short Squeeze

According to numerous industry sources, the resurrection of SOL is also attributable to an increase in demand for decentralized financial projects. The Solana blockchain enables developers to create decentralized apps, or dApps, at a low cost and provides fast transaction execution.


Its scalability, speed, and affordability make it an appealing alternative for DeFi initiatives that require significant volumes of transactions to be processed rapidly and at a cheap cost.

While traders are cheering the return of Bitcoin (back over $21,000), and Ethereum (back over $1,550), #Solana is the real star as the weekend begins,” said Santiment, an on-chain analytics business. “$SOL has gained +22% in the last two hours alone, fuelled by liquidated shorts.”

According to Santiment, the significant comeback in Sol prices is the result of a “short squeeze,” which is a fast increase in the price of an asset caused by investors who bet against the product, being forced to purchase it in order to limit their losses.

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Is Alibaba Now Poised to Rally?




Is Alibaba Now Poised to Rally?

After reaching record lows not seen since 2016, 2022 was merciless for Alibaba Group Holding (NYSE: BABA). This comes as no surprise given all of the recent China-related news. A zero-COVID policy has stifled output and demand, while antitrust laws from the ruling party have targeted its tech companies. The continued supply chain and labor constraints haven’t helped matters either. Was 2022 always a difficult year with such headwinds?

Maybe, but things are starting to turn around, and it appears that the bulls have returned. Major tailwinds are expected to carry Alibaba into 2023. Let’s look at a few of them.

Positive Outlook

For openers, analysts have identified numerous stocks as poised for a comeback bounce in the coming year. Alibaba is one of the most recent example. On Monday, Morgan Stanley named the e-commerce behemoth their favorite in the tech sector. According to Gary Yu and his team, investors have “underappreciated Alibaba’s leverage to a Chinese consumption rebound.” This is mostly owing to its retail success in areas such as consumer products.

Yu also anticipates an improvement in China’s regulatory environment, which will go a long way toward reversing the selling pressure that has brought shares down as much as 80% from their 2020 highs. But it isn’t all. Founder Jack Ma recently announced his intention to step down as CEO and pass over the reigns to someone else.

With his name now being disassociated with Alibaba, one more risk and possible headwind has been removed.

Along with the bullish outlook, Morgan Stanley reiterated its Outperform rating and set a $150 price objective for Alibaba shares. This indicates a 30% upside from current levels based on where they closed on Wednesday. Shares are already up almost 100% from their lows in October, so this outlook,  simply adds gasoline to the belief that a significant recovery rally is in the works.

Additional tailwinds exist in the shape of the zero-COVID policy being reversed, which will finally allow the Chinese economy to recuperate after living in constant dread of a lockdown. This comes after widespread rallies caused the government to cave, which is unusual in China.


Alibaba’s Risk Factors

There are risks, the most visible of which are geopolitical tensions. When compared to a decade ago, the United States and China are no longer on good terms. The conflict in Ukraine and escalating tensions with Taiwan have not helped the relationship.

This has filtered down to corporations, with the United States refusing to transfer semiconductor chips to China for fear that they may be used against them in the future. Chinese retaliation is not ruled out and would almost certainly aggravate the situation.

Furthermore, the delisting risk that has dogged Alibaba and its counterparts in recent years has not materialized as many bears predicted. It still exists, but the longer Alibaba remains on the good side of US auditors, the more likely its shares will become a permanent fixture on the New York Stock Exchange.

Indeed, there was news on this front as recently as the last week of December, when it was reported that numerous US-listed Chinese companies had abandoned intentions to list in Hong Kong. This approach was positioned as their backup option for remaining listed outside of China if the US followed through on the threat of delisting.

Still, this is the beast from the east, Alibaba. While shares have been heavily discounted in recent years, a specter of their former self remains, as indicated by the stock’s doubling in value in less than three months.

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